New Trade: Long Expedia ($EXPE) & Short Microsoft ($MSFT)

By: ispeculatornew
Date posted: 03.17.2016 (4:16 am) | Write a Comment  (1 Comment)

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Today I am opening my 9th trade of the year between 2 stocks that trade at similar P/E ratios. As is always the case you can see the existing live trades here:

http://www.intelligentspeculator.net/livetrades

Let’s start off by looking at the numbers:

TickerNamePricePE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBetaRevenue/ShareSales 5Y Avg GrowthEPS 5Y Avg Growth
MSFTMicrosoft Corp54.3522.6617.78-1.357.7749.691.2211.443.91-3.99
EXPEExpedia Inc114.352.6317.1-7.8315.774.1432.371.1651.2618.34N/A

Microsoft has a good story going on (more on that later) but the clear winner in terms of growth is Expedia.

EXPE_MSFT_chart

Long Expedia (EXPE)

Over the past year or so, I’ve been more impressed with its execution and I am starting to believe that Priceline (PCLN), Tripadvisor (TRIP) and Expedia (EXPE) are the 3 giants that will continue to do well over the next few years. Expedia has been able to secure key partnerships and focus on the customer experience. I do think EXPE will be able to keep up the strong growth that it has seen in recent years.

EXPE_chart

Next earnings: April 28th 2016

Short Microsoft (MSFT)
It does feel strange for me to short Microsoft here. I do usually short names that I no longer think are overvalued in the short term but also over the long term. I am a strong believer in most of the actions by Microsoft in recent months and certainly think it has given itself a shot to thrive in this new cloud/mobile world.

Cloud space: Apart from Amazon’s AWS, you could argue that Microsoft and Google are the only 2 significant players. Thanks to its already strong enterprise presence, I’d tend to believe that MSFT will continue to do extremely well here
Mobile: Windows Phones are not a clear success it’s safe to say but Windows is working on other ways to profit from this new mobile environment. It has built a solid suite of prodcutivty apps (Outlook, Wunderlist, Skype, office, etc)

That being said, there are still significant challenges especially when you consider the source of much of Microsoft’s revenue; Windows and office.

With PC sales declining and Windows market share on mobile being so small, this new world brings major challenges to Microsoft from a growth perspective. I do think that the company will be able to thrive but I’m not sure it makes sense for MSFT to be trading at the same P/E as EXPE.

MSFT_chart

Next earnings: April 21st

Disclaimer: This trade on EXPE-MAST will be done on today’s opening,
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1 Comment

  1. Comment by Ken — March 23, 2016 @ 10:37 am

    Your analysis of the numbers is always outstanding, however, the narrative counts for something too.

    You’re now long 2 travel related stocks: EXPE and TRIP, both of which are underperforming the market this year. IMHO the travel industry will continue to be a bad area of investment, as long as terrorism is around.

    Meantime, MSFT has a new competent CEO that is revitalizing the company, which is why MSFT is outperforming the market this year.

    Conclusion: I like long MSFT, short TRIP or EXPE.

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